Method and apparatus for providing professional liability coverage

A system and method are provided that, in the case of professionals having large numbers of publicly traded corporate clients, are able to use the relative probabilities of different ones of those clients suffering a professional liability triggering event and the likely relative impact of such an event on different clients, to provide professional liability coverage at either lower cost to the professional or higher profits to the provider. The right to deliver securities in the publicly traded client companies at any time during the coverage period, at the price in effect at the starting date, is secured. The covered professional or its insurer is granted the qualified right to sell those securities at the starting price. If the value of a company falls because of a professional liability triggering event, the covered party is allowed to exercise that right to sell. To exercise the right to sell, the party will be able to buy the securities at the then current reduced price, thus reaping as a gain substantially the amount of potential claims against it. A data storage medium encoded with instructions for performing the method is also provided.

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Claims

1. A machine-readable data storage medium encoded with a set of machine-executable instructions for using a data processing system including a printer to perform a method of providing professional liability coverage to a professional, during a coverage period having a starting date and an ending date, said professional having clients including a substantial number of publicly traded corporations each having a respective securities price at a respective starting price on said starting date, and with respect to whom a professional liability triggering event could cause a decline in said respective securities price, said method comprising the steps of:

using said data processing system, determining a respective number of positions in securities of each of said publicly traded corporations needed to provide said professional liability coverage, based on market correlation between prices of securities of said publicly traded corporations, and on at least one of (a) probability that a professional liability triggering event will occur relative to any one or more of said publicly traded corporations, and (b) likely effect of said professional liability triggering event on said price of securities of said one or more publicly traded corporations,
using said data processing system to buy and/or sell financial instruments for securing at a respective cost a right to deliver at a respective delivery price, at any time at least as late as said ending date, said respective number of positions in securities of each of said publicly traded corporations;
using said data processing system, determining from said respective costs a payment to be charged to said professional in exchange for said coverage; and
using said printer of said data processing system, generating a coverage document conferring, in exchange for said payment, a right to sell, at a respective claim price, at any time during said coverage period, up to said respective number of positions in securities of any one of said publicly traded corporations when there is a professional liability triggering event with respect to any of said publicly traded corporations, said coverage document setting forth said payment and evidencing said right to sell.

2. The machine-readable data storage medium of claim 1 wherein said delivery price, as encoded, is based on said starting price.

3. The machine-readable data storage medium of claim 2 wherein, as encoded, said delivery price is said starting price.

4. The machine-readable data storage medium of claim 1 wherein, as encoded, said claim price is based on said starting price.

5. The machine-readable data storage medium of claim 4 wherein, as encoded, said claim price is said starting price.

6. The machine-readable data storage medium of claim 4 wherein, as encoded, said claim price is said starting price on said starting date and said instructions cause said data processing system to adjust said claim price periodically during said coverage period based on market fluctuations of said securities price.

7. The machine-readable data storage medium of claim 1 wherein, as encoded, said step of using said data processing system to secure the right to deliver said respective number of positions in securities comprises using said data processing system to establish, on said starting date, for later delivery at said delivery price, said respective number of positions in securities of each of said publicly traded corporations.

8. The machine-readable data storage medium of claim 7 wherein, as encoded, said step of using said data processing system to establish positions comprises:

using said data processing system, selling, on said starting date, for later delivery at said delivery price, said respective number of positions in securities of each of said publicly traded corporations; and
using said data processing system, buying on said starting date, at a respective cost, a respective option to buy said respective number of positions in securities of each of said publicly traded corporations at a respective buying price at any time during said coverage period.

9. The machine-readable data storage medium of claim 8 wherein, as encoded, said buying price is based on said starting price.

10. The machine-readable data storage medium of claim 9 wherein, as encoded, said buying price is said starting price.

11. The machine-readable data storage medium of claim 1 wherein, as encoded, said step of using said data processing system to determine said respective number of positions in securities of each of said publicly traded corporations needed to provide said professional liability coverage comprises:

using said data processing system, evaluating, for each one of said publicly traded corporations, a respective one of said market correlations between price of securities of said one of said publicly traded corporations and price of securities of each respective other one of said publicly traded corporations;
using said data processing system, adjusting each of said respective correlations by a factor representing relative probabilities that professional liability triggering events will occur relative to correlated ones of said publicly traded corporations, and by a factor representing likely relative severity of effects of said professional liability triggering events on said prices of securities of correlated ones of said publicly traded corporations; and
using said data processing system, deriving from said adjusted correlations a minimum variance portfolio of positions in securities of said publicly traded corporations.

12. The machine-readable data storage medium of claim 1 wherein said method, as encoded, further comprises the steps of:

using said data processing system to process collection of said payment;
using said data processing system, monitoring for occurrence of a professional liability triggering event with respect to said professional and a respective one of said publicly traded corporations; and
on occurrence of a professional liability triggering event with respect to said professional:
using said data processing system, evaluating effect of said professional liability triggering event on price of securities of said respective one of said publicly traded corporations and deriving an exposure therefrom based on a post-event price of said securities,
honoring said conferred right to sell, at least up to said exposure, using said data processing system to acquire securities of at least said one of said publicly traded corporations at said post-event price, and
using said data processing system, exercising said right to deliver said securities of at least said one of said publicly traded corporations at said delivery price.

13. A machine-readable data storage medium encoded with a set of machine-executable instructions for using a data processing system including a printer to perform a method for providing professional liability coverage to a plurality of professionals, each professional being covered during a respective coverage period having a starting date and an ending date, each professional having clients including a substantial number of publicly traded corporations each having a respective securities price at a respective starting price on said starting date, and with respect to whom a professional liability triggering event could cause a decline in said respective securities price, said method comprising the steps of:

for each said professional:
using said data processing system, determining a respective number of positions in securities of each of said publicly traded corporations needed to provide said professional liability coverage, based on market correlation between prices of securities of said publicly traded corporations, and on at least one of (a) probability that a professional liability triggering event will occur relative to any one or more of said publicly traded corporations, and (b) likely effect of said professional liability triggering event on said price of securities of said one or more publicly traded corporations,
using said data processing system to buy and/or sell financial instruments for securing at a respective cost a right to deliver at said respective starting price, at any time at least as late as said ending date, said respective number of positions in securities of each of said publicly traded corporations,
using said data processing system, determining from said respective costs a payment to be charged in exchange for said coverage, and
using said printer of said data processing system generating a coverage document conferring, in exchange for said payment, a right to sell, at a respective claim price, at any time during said coverage period, up to said respective number of positions in securities of any one of said publicly traded corporations when there is a professional liability triggering event with respect to any of said publicly traded corporations, said coverage document setting forth said payment and evidencing said right to sell;
using said data processing system, establishing an account for each of said professionals;
using said data processing system to process collection of said payment and to credit a respective one of said accounts;
using said data processing system, monitoring for occurrence of a professional liability triggering event with respect to any of said professionals and a respective one of said publicly traded corporations and
on occurrence of a professional liability triggering event with respect to any one of said professionals:
using said data processing system, evaluating effect of said professional liability triggering event on price of securities of said respective one of said publicly traded corporations and deriving an exposure therefrom based on a post-event price of said securities,
honoring said conferred right to sell, as to said one of said professionals, at least up to said exposure, using said data processing system to acquire securities of at least said one of said publicly traded corporations at said post-event price, and
using said data processing system, exercising said right to deliver said securities of at least said one of said publicly traded corporations at said delivery price.

14. The machine-readable data storage medium of claim 13 wherein, as encoded, said delivery price is based on said starting price.

15. The machine-readable data storage medium of claim 14 wherein, as encoded, said delivery price is said starting price.

16. The machine-readable data storage medium of claim 13 wherein, as encoded, said claim price is based on said starting price.

17. The machine-readable data storage medium of claim 16 wherein, as encoded, said claim price is said starting price.

18. The machine-readable data storage medium of claim 16 wherein, as encoded, said claim price is said starting price on said starting date and said instructions cause said data processing system to adjust said claim price periodically during said coverage period based on market fluctuations of said securities price.

19. The machine-readable data storage medium of claim 13 wherein said encoded instructions for said step of using said data processing system to secure the right to deliver said respective number of securities comprise instructions for using said data processing system to establish, on said starting date, for later delivery at said delivery price, said respective number of positions in securities of each of said publicly traded corporations.

20. The machine-readable data storage medium of claim 19 wherein said encoded instructions for using said data processing system to establish positions comprise instructions for:

using said data processing system, selling, on said starting date, for later delivery at said starting price, said respective number of positions in securities in each of said publicly traded corporations; and
using said data processing system, buying on said starting date, at a respective cost, a respective option to buy said respective number of positions in securities of each of said publicly traded corporations at a respective buying price at any time during said coverage period.

21. The machine-readable data storage medium of claim 20 wherein, as encoded, said buying price is based on said starting price.

22. The machine-readable data storage medium of claim 21 wherein, as encoded, said buying price is said starting price.

23. The machine-readable data storage medium of claim 13 wherein said encoded instructions for said step of using said data processing system to determine said respective number of positions in securities of each of said publicly traded corporations needed to provide said professional liability coverage comprise instructions for:

using said data processing system, evaluating, for each one of said publicly traded corporations, a respective one of said market correlations between price of securities of said one of said publicly traded corporations and price of securities of each respective other one of said publicly traded corporations;
using said data processing system, adjusting each of said respective correlations by a factor representing relative probabilities that professional liability triggering events will occur relative to correlated ones of said publicly traded corporations, and by a factor representing likely relative severity of effects of said professional liability triggering events on said prices of securities of correlated ones of said publicly traded corporations; and
using said data processing system, deriving from said adjusted correlations a minimum variance portfolio of positions in securities of said publicly traded corporations.

24. A machine-readable data storage medium encoded with a set of machine-executable instructions for using a data processing system including a printer to perform a method for financing professional liability insurance for a plurality of professionals, each professional being covered by an insurer during a respective coverage period having a starting date and an ending date, each professional having clients including a substantial number of publicly traded corporations each having a respective securities price at a respective starting price on said starting date, and with respect to whom a professional liability triggering event could cause a decline in said respective securities price, said method comprising the steps of:

for each said professional:
using said data processing system, determining a respective number of positions in securities of each of said publicly traded corporations needed to provide said professional liability coverage, based on market correlation between prices of securities of said publicly traded corporations, and on at least one of (a) probability that a professional liability triggering event will occur relative to any one or more of said publicly traded corporations, and (b) likely effect of said professional liability triggering event on said price of securities of said one or more publicly traded corporations, using said data processing system to buy and/or sell financial instruments for securing at a respective cost a right to deliver at a respective delivery price, at any time at least as late as said ending date, said respective number of positions in securities of each of said publicly traded corporations,
using said data processing system, determining from said respective costs a payment to be charged to said insurer in exchange for financing said coverage for said professional, and
using said printer of said data processing system, generating a coverage document for delivery to said insurer conferring on said insurer, in exchange for said payment, a right to sell, at a respective claim price, at any time during said coverage period, up to said respective number of positions in securities of any one of said publicly traded corporations then there is a professional liability triggering event with respect to said professional and a respective one of said publicly traded corporations, said coverage document setting forth said payment and evidencing said right to sell.

25. The machine-readable data storage medium of claim 24 further comprising encoded instructions for performing the steps of:

using said data processing system, establishing an account for each insurer;
using said data processing system to process collection of said payment from each insurer as to a respective one of said professionals and to credit said respective account;
using said data processing system, monitoring for occurrence of a professional liability triggering event with respect to any of said professionals and a respective one of said publicly traded corporations; and
on occurrence of a professional liability triggering event with respect to any one of said professionals and a respective one of said publicly traded corporations:
using said data processing system, evaluating effect of said professional liability triggering event on price of securities of said respective one of said publicly traded corporations and deriving an exposure therefrom based on a post-event price of said securities,
honoring said right conferred on said one of said insurers, at least up to said exposure, using said data processing system to acquire from said one of said insurers positions in securities of at least said one of said publicly traded corporations at said post-event price, and
using said data processing system, exercising said right to deliver said positions in securities of at least said one of said publicly traded corporations at said delivery price.

26. The machine-readable data storage medium of claim 24 wherein, as encoded, said delivery price is based on said starting price.

27. The machine-readable data storage medium of claim 26 wherein, as encoded, said delivery price is said starting price.

28. The machine-readable data storage medium of claim 24 wherein, as encoded, said claim price is based on said starting price.

29. The machine-readable data storage medium of claim 28 wherein, as encoded, said claim price is said starting price.

30. The machine-readable data storage medium of claim 28 wherein, as encoded, said claim price is said starting price on said starting date and said instructions cause said data processing system to adjust said claim price periodically during said coverage period based on market fluctuations of said securities price.

31. The machine-readable data storage medium of claim 24 wherein said encoded instructions for said step of using said data processing system to secure the right to deliver said respective number of securities comprise encoded instructions for using said data processing system to establish, on said starting date, for later delivery at said delivery price, said respective number of positions in securities of each of said publicly traded corporations.

32. The machine-readable data storage medium of claim 31 wherein said encoded instructions for said step of using said data processing system to establish positions comprise instructions for:

using said data processing system, selling, on said starting date, for later delivery at said delivery price, said respective number of positions in securities of each of said publicly traded corporations; and
using said data processing system, buying on said starting date, at a respective cost, a respective option to buy said respective number of positions in securities of each of said publicly traded corporations at a respective buying price at any time during said coverage period.

33. The machine-readable data storage medium of claim 32 wherein, as encoded, said buying price is based on said starting price.

34. The machine-readable data storage medium of claim 33 wherein, as encoded, said buying price is said starting price.

35. The machine-readable data storage medium of claim 24 wherein said encoded instructions for said step of using said data processing system to determine said respective number of positions in securities of each of said publicly traded corporations needed to provide said professional liability coverage comprise instructions for:

using said data processing system, evaluating, for each one of said publicly traded corporations, a respective one of said market correlations between price of securities in said one of said publicly traded corporations and price of securities in each respective other one of said publicly traded corporations;
using said data processing system, adjusting each of said respective correlations by a factor representing relative probabilities that professional liability triggering events will occur relative to correlated ones of said publicly traded corporations, and by a factor representing likely relative severity of effects of said professional liability triggering events on said prices of securities of correlated ones of said publicly traded corporations; and
using said data processing system, deriving from said adjusted correlations a minimum variance portfolio of positions in securities of said publicly traded corporations.

36. The machine-readable data storage medium of claim 1, claim 13 or claim 24, said data storage medium being magnetic.

37. The magnetic machine-readable data storage medium of claim 36, said data storage medium being a floppy diskette.

38. The magnetic machine-readable data storage medium of claim 36, said data storage medium being a hard disk.

39. The machine-readable data storage medium of claim 1, claim 13 or claim 24, said data storage medium being optically readable.

40. The optically readable storage medium of claim 39, said data storage medium being a CD-ROM.

41. The optically readable data storage medium of claim 39, said data storage medium being a magneto-optical disk.

Referenced Cited

U.S. Patent Documents

4856788 August 15, 1989 Fischel

Other references

  • Dantzig, G.B., Linear Programming Extensions (Princeton University Press, Princeton, New Jersey, 1963), pp. 499-513. Fama, E.F., Foundations of Finance: Portfolio Decisions and Securities Prices (Basic Books, Inc., New York, 1976), pp. 260-270. Fisz, M., Probability Theory and Mathematical Statistics (Robert E. Krieger Publishing Company, Malabar, Florida, 1963), pp. 89-91. Johnson, R.A., et al., Applied Multivariate Statistical Analysis (Prentice-Hall, Inc., Englewood Cliffs, New Jersey, 1992), pp. 140-145. Markowitz, H.M., Portfolio Selection: Efficient Diversification of Investments (John Wiley & Sons, Inc., New York, 1959), pp. 407-419. Strang, G., Introduction to Applied Mathematics (Wellesley-Cambridge Press, Wellesley, MA, 1986), pp. 96-107. Varian, H.R., ed., Economic and Financial Modeling with Mathematica.RTM. (TELOS, the Electronic Library of Science, Santa Clara, CA, 1993), pp. 1-16. Wagner, H.M., Principles of Operations Research (with Applications to Managerial Decisions) (Prentice-Hall, Inc., Englewood Cliffs, New Jersey, 2nd ed. 1975), pp. 223-234. Wonnacott, T.H., et al., Introductory Statistics for Business and Economics (John Wiley & Sons, Inc., New York, 1972), pp. 163-165, 398-399. Yamane, T., Mathematics for Economists: An Elementary Survey (Prentice-Hall, Inc., Englewood Cliffs, New Jersey, 2nd ed. 1968), pp.196-221, 472-493. "Luxembourg: Office du Ducroire (ODL)", Project & Trade Finance World Export Credit Guide pp. 82-84, Sep. 1994, Dialog file 15, Accession No. 00926333.

Patent History

Patent number: 5752237
Type: Grant
Filed: May 18, 1995
Date of Patent: May 12, 1998
Assignee: Mottola Cherny & Associates, Inc. (New York, NY)
Inventor: Julius Cherny (Monsey, NY)
Primary Examiner: Gail O. Hayes
Assistant Examiner: Frantzy Poinvil
Attorney: Fish & Neave
Application Number: 8/444,290